AGRICULTURAL VALUE CHAIN FINANCE

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AGRICULTURAL VALUE CHAIN FINANCE

• Kyaw Myint
• Ministry of Agriculture and Irrigation
• Myanma Agriculture Service
• (Myanmar)

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Agricultural value chain

• Over three quarter of population in many
  developing countries live in rural areas.
• Rural income mainly depends on agriculture and
  livestock farming.
• From the agricultural value chain point of view,
  farmers in rural areas are important role to
  provide fresh produce and food supplies, quality
  and safety product demanded by traders,
  agro-processors, supermarkets and exporters.

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Quality and safety product

• Farmers in developing countries are challenged to
  compete in markets that are more demanding in
  terms of quality and food safety, more
  concentrated and integrated, and much more open
  to international competition.

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Quality and safety product

• In developed countries, traceability is achieved
  from the growers field to the supermarket shelf
  in order to have quality and safety product.
• Traders, exporters and agri-business in
  developing countries need to upgrade their supply
  chain and endeavour necessary arrangement to be
  competitive.

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Agricultural value chain

• A value chain is a supply chain made up of a
  series of actors from input suppliers to
  producer and processors to exporters and
  buyers-engaged in the full range of activities to
  bring a product from its conception to its end
  use.
• The government need to support the private sector
  for their participation and investment.
• In agricultural value chain, farmers, traders,
  agribusiness and input suppliers need to work
  together.

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Agricultural value chain

• For the development of agricultural value chain,
  consumer and market knowledge, added value,
  product differentiation, market potential,
  sustainable production system, generating rural
  income and increase employment for the rural
  people need to take into account .

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Agricultural value chain

• long-term strategic vision ,
• They need to recognize their interdependence and
  to work together ,
• To define common object, share risks and benefits
  and make the relation work,
• Value chain is oriented by demand and not by
  supply,
• All actors need to have commitment to control
  product quality and safety product,
• The implementation is based on mutual trust ,
• Information exchange and
• Based on the different circumstances, the supply
  chain needs to be well organized and competitive.

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AGRICULTURAL VALUE CHAIN FINANCE

• Finance providers feel that financing of
  small-and medium-scale farmers are often risky
  compared to traders.
• Thus, commercial urban-based banks are reluctant
  to provide finance to resource poor farmers in
  rural area.
• The reason is that most poor farmers have no
  collateral. In the case of Myanmar, land is owned
  by State and farmers have land use right.
• From the commercial bank point of view, minimum
  risks, repayment and high loan recovery rates are
  the most important issue.

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AGRICULTURAL VALUE CHAIN FINANCE

• Traders, agro-processors, association of market
  traders and business organizations participate in
  moving the product from the farm to the final
  market .
• In the case of Myanmar, all of business people
  use finance which rely on their own finance, bank
  loan and some rely on family and relatives
  finance.

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AGRICULTURAL VALUE CHAIN FINANCE

• Based on mutual trust, traders rely on deferred
  payment system in local markets.
• Large companies rely on own finance, bank loan
  and invite shareholders and investors for their
  agricultural marketing.
• Put another way, financing is important issue for
  all participants in the agricultural value chain.

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AGRICULTURAL VALUE CHAIN FINANCE (Resource poor
farmers)

• Resource poor farmers have no collateral such as
  property, land or other assets in order to have
  loan from commercial bank.
• Agricultural Development Bank provides season
  loan which is not adequate for resource poor
  farmers.
• Most small-scale and medium-scale farmers have no
  choice to borrow money from local moneylenders
  who charge high interest rates.
• They cannot use agro-input due to insufficient
  finance. As a result, level of yield is low.

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AGRICULTURAL VALUE CHAIN

• The financial service need to be provided to
  farmers, agribusiness and small and medium
  enterprises (S M Es)."
• Unfortunately, financial services cannot cover
  all poor farmers in rural area in the country."
• If there is no financing service access to
  farmers, the best possible thing is that
  "financing in agriculture need to look at supply
  chain finance".
• Traders, input suppliers and agribusiness are
  important role in the financing of farmers.

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Public-Private Partnership (PPP)

• The government need to support the private sector
  for their participation and investment.
• Public-private partnership (PPP) can support to
  all participants in agricultural value chain.
• In the case of Myanmar, renovation and expansion
  of highway from Mandalay wholesale market to Muse
  Town located on Myanmar-China border was
  implemented by PPP .

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Public-Private Partnership (PPP).

• In the case of Myanmar, pulses, oilseeds and
  fresh produce of jujube, mango, water melon and
  muskmelon are delivered to Myanmar-China border
  for trading to Yunan province, China.
• Fresh produce growers and traders can deliver to
  Myanmar-China border without time-consuming.
• To cover the initial investment cost and
  maintenance cost , toll gate are established by
  private sector.

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Input suppliers

• Private sector participates as agro-input and
  seed suppliers in the supply chain.
• On the supply side, the private companies need to
  recovery of sale revenue and do not prefer to
  sell farmers with deferred payment.
• In the case of Myanmar, agro-input retailers
  supply to farmers in main surplus-producing
  areas with deferred payment however sale price is
  added by the opportunity cost of interest.
• Thus, farmers use agro-input with a little bit
  high price due to inadequate finance.

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Input suppliers

• Agro-input retailers need more finance for their
  buying and selling activities. Put another way,
  financing is essential for agro-input suppliers
  as well as farmers.
• Extension workers need to organize to farmers to
  purchase agro-input by farmer groups in stead of
  individual farmer. The main reason is that if
  quantities purchased by farmers are large, they
  can make negotiation with input suppliers and
  transporters for purchasing price and transport
  charge. Put another way, marketing cost can
  reduce to farmers.

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Input suppliers and traders(In the case of
Myanmar)

• Highland fresh produce wholesalers in Yangon
  wholesale market work together with farmers in
  main-surplus producing areas located in highland
  area.
• Yangon large-scale wholesalers contact input
  suppliers to obtain cabbage seeds and fertilizer
  and provide to farmers for their cabbage growing.
• Farmer groups receive agro-input from wholesaler
  and supply highland cabbage to Yangon
  wholesalers.

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Local companies and Farmers

• Local export companies endeavour in order to have
  variety and ensured quality from farmers in
  main-surplus producing areas.
• Fertilizer and seed are supplied to farmers who
  need to sell their crop with market price.
• Some constraints such as marketing arrangement,
  farmers' sale volume being low compared to
  quantity demanded by company are faced by local
  companies.

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Local companies and Farmers

• Although constraints occurred in contract
  farming, farmers and local Companies endeavour
  to solve and collaborate for the success of
  supply chain.
• As for farmers, this type of business is
  supported to obtain finance supply and ensured
  market.
• Mutual trust between small farmers and companies
  is critical issue to succeed.

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Value-added product

• Private business need to play in the higher value
  market chain.
• Technology, standardization, quality control,
  market knowledge and financing are required.
• Private business find out their investment
  opportunity.
• In order to have value added product , private
  business invest to compete with other suppliers.
• Value-added product such as bean split with skin
  and without skin are received better price for
  local exporters.

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Modern flow process of pulses in Myanmar
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FINANCIAL INSTITUTION

• In the case of Myanmar, Agricultural Development
  Bank (MADB), Livestock and Fishery Development
  Bank (LFDB), licensed pawnshops, saving and loan
  cooperatives, national NGOs and international
  NGOs are main source of finance farmers and poor
  people in rural area.
• MADB distributes seasonal crop loan or short-term
  loan for 2-4 years and long-term loan for 5 years
  and above.
• Interest rate of MADB is currently determined by
  the prescription of the Central Bank.

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FINANCIAL INSTITUTION

• Lending rate is currently 17percent, while the
  saving rate is 12 per annum.
• The same interest rate of lending and borrowing
  is applied by Commercial banks. In the case of
  Myanmar, Agricultural Development Bank provides
  seasonal loan, perennial crop plantation such as
  oil palm, tea, and coffee etc.
• Due to a sharp increase of fertilizer and fuel
  price, seasonal crop loan provided by
  Agricultural Development Bank had become small
  compared to farmers requirement to be purchased
  agro-input and paid hired labour cost.

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FINANCIAL INSTITUTION

• Amount of seasonal loan cannot be covered
  farmers requirement due to limitation of
  financial source .
• Put another way, seasonal loan do not reflect
  current market price of agro-inputs.
• Generally speaking, resource poor farmers do
  not interest to deposit their cash in the bank.
• The public sector endeavour farmers to save their
  cash in Agricultural Development Bank

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FINANCIAL INSTITUTION

• Farmers who save in Agricultural Development Bank
  receive loan to purchase agricultural
  machineries such as water pumping engine, small
  tractor and thresher etc. depending on their
  saving amount.
• Financing projects are required.
• National NGOs and international Non-Governmental
  Organization (I NGOs) involve in micro-finance
  projects implemented in rural areas.

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FINANCIAL INSTITUTION

• Rural development projects support micro credit
  to, self-help groups (SGH), landless people and
  small poor farmers family to generate income to
  reduce poverty situation
• Access to microfinance services enables poor and
  economically active people to invest in new
  business activities, thereby increasing levels of
  employment and income.

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FINANCIAL INSTITUTION

• Micro-finance is required to develop the
  agricultural-value chain and micro-finance
  projects need to extend in rural areas.
• Due to limitation of finance, public sector's
  financing cannot fulfill to requirement of
  resource poor farmers and poor people.
• Traders, input suppliers and agribusiness need to
  provide finance to farmers in agricultural value
  chain in order to have quality and safety
  product, and ensured supplies.

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FINANCIAL INSTITUTION

• Financing is important issue for the development
  agricultural value chain. In the agricultural
  value chain, input suppliers, traders,
  agro-processors and agri-business are important
  role of financing to farmers and need to work
  together.
• Government need to support to promote financing
  for resource poor farmers and private sector.

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THANK YOU